Spending for drugs is a substantial component of total out-of-pocket health spending for all ages and income levels. The following tables and charts were prepared using the Consumer Expenditure Survey (CEX) data prepared by the Bureau of Labor Statistics. This analysis differs in several respects from others reported in this chapter. Expenditures are for the consumer unit (basically a family or unrelated individuals who share living expenses) rather than the individual. Consumer units are grouped here according to age of the reference person.24 A unit with an elderly reference person may contain non-elderly individuals, and vice versa.

Table 2-25 shows the average breakdown of spending by consumer units in 1997-98. Spending for non-health necessities -- defined here as food, shelter, utilities, transportation, and clothing -- makes up a majority of total spending for all ages and income groups.25 Out-of-pocket health spending, including insurance premiums as well as out-of-pocket payments for drugs and other medical services and supplies, is an important component of discretionary spending (spending other than for non-health necessities) for all ages and incomes. Payments for over-the-counter drugs are included in the total for out-of-pocket health spending. As in the rest of this chapter, they are not included in spending on prescription drugs.

Table 2-25. Components of Average Consumer Unit Spending, by Income and Age of Reference Person, 1997-19981

Average expenditures per consumer unit

Consumer units whose reference person is:

Under age 65

Age 65 or over

All incomes

Income <$15,0002

Income >$40,0002*

All incomes

Income <$15,0002

Income >$40,0002 *

Total expenditures

$37,306

$16,746

$53,740

$25,598

$15,999

$51,377

Spending for non-health necessities

$23,602

$12,184

$32,247

$15,032

$9,986

$27,573

Discretionary spending (including health)3

$13,704

$4,562

$21,493

$10,566

$6,013

$23,804

Health spending4

$1,499

$703

$2,045

$2,993

$2,178

$4,210

Prescription drug spending

$154

$117

$173

$516

$438

$502

Drugs as % of all spending

0.4%

0.7%

0.3%

2.0%

2.7%

1.0%

Drugs as % of discretionary

1.1%

2.6%

0.8%

3.8%

5.3%

1.8%

Drugs as % of health

10.2%

16.6%

8.5%

17.2%

20.1%

11.9%

* The statistics in this income group are less reliable than for other series, due to a lower sample size.

1Estimates of single-year prescription drug expenditures are unpublished data that do not meet the reliability standards of published estimates. Therefore, data are presented as averages of two years to generate sufficient sample size needed to make the prescription drug estimates meet the Bureau of Labor Statistics’ reliability standards.

2All income ranges are before taxes.

3Health spending is included with discretionary spending because spending for health is frequently forgone by low income households.

4Out-of-pocket health care spending includes out of pocket insurance payments, prescription and nonprescription drug expenses, and payments for all other medical services and supplies.

Source: Consumer Expenditure Survey data from the Bureau of Labor Statistics as analyzed by the Office of the Actuary, HCFA(now known as CMS).

As Figure 2-12 shows, out-of-pocket spending for prescription drugs is a larger proportion of health spending for units with an elderly reference person than for units with a younger reference person.26 Prescription drug spending also accounts for a larger share for people with low incomes than for people with higher incomes. For the lower income units with an elderly reference person, spending for drugs accounted for 20 percent of health spending, and 5 percent of all discretionary spending.

Figure 2-12. Out-of-pocket Prescription Drug Spending as a Proportion of Health Spending, by Age and Income, 1997-1998

Note: Expenditures are for the consumer unit and shown by the age of the reference person (see text).

Because the CEX information on drug coverage is not definitive, this analysis is not able to compare spending by those with coverage to those without coverage. However, this chapter showed earlier for Medicare beneficiaries that as a percentage of income, drug spending for those without coverage was double the spending of those with coverage (see Table 2-19). This implies that for uncovered beneficiaries, an even larger proportion of spending goes to prescription drugs than is shown here.

Table 2-26 shows changes in the components of spending for units with an elderly reference person between 1992-93 and 1997-98. Out-of-pocket spending for drugs rose much more rapidly than out-of-pocket health spending. This was particularly true for low income families. In dollar terms, out-of-pocket drug spending for higher-income units increased more than for lower-income units. As a share of health spending, however, the increase was much greater for the lowest-income units: increased spending for drugs accounted for 92 percent of the total increase in health spending during the period. As a result, drugs as a share of health spending rose from 16.3 percent to 17.2 percent for all consumer units with an elderly reference person, and from 17.6 percent to 20.1 percent for the subset of these units with the lowest incomes.

Table 2-26. Change in Components of Average Consumer Unit Spending for Units with a Reference Person Age 65 or Older, 1992-1993 to 1997-19981

Average expenditures Per consumer unit

All income groups

Income <$15,000 before taxes

1992-93

1997-98

% change

1992-93

1997-98

% change

Total expenditures

$21,214

$25,598

20.7%

$14,054

$15,999

13.8%

Spending for non-health necessities

$12,520

$15,032

20.1%

$8,760

$9,986

14.0%

Discretionary spending (including health)2

$8,694

$10,566

21.5%

$5,294

$6,013

13.6%

Health spending3

$2,644

$2,993

13.2%

$2,106

$2,178

3.4%

Prescription drug spending

$432

$516

19.4%

$372

$438

17.9%

Drugs as % of all spending

2.0%

2.0%

2.6%

2.7%

Drugs as % of discretionary

5.0%

4.9%

7.0%

7.3%

Drugs as % of health

16.3%

17.2%

17.6%

20.1%

1Estimates of single-year prescription drug expenditures are unpublished data that do not meet the reliability standards of published estimates. Therefore, data are presented as averages of two years to generate sufficient sample size needed to make the prescription drug estimates meet the Bureau of Labor Statistics’ reliability standards.

2Health spending is included with discretionary spending because spending for health is frequently forgone by low income households.

3Out-of-pocket health care spending includes out of pocket insurance payments, prescription and nonprescription drug expenses, and payments for all other medical services and supplies.

Source: Consumer Expenditure Survey data from the Bureau of Labor Statistics as analyzed by the Office of the Actuary, HCFA(now known as CMS).

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